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Management > Chapter 23 Packet Notes > Flashcards

Chapter 23 Packet Notes Flashcards

1
Q

The possibility of suffering harm or loss.

A

Risk

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2
Q

The possibility of losses associated with the assets and the earnings potential of a firm.

A

Business Risk

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3
Q

The uncertainty (gain or loss) associated with an investment decision.

A

Market Risk

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4
Q
  • The uncertainty associated with a situation where only losee or no loss can occur- there is no potential for gain (only downside).
  • Only form of risk that is insurable.
A

Pure Risk

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5
Q
  • Real property
  • Personal property
  • Replacement value of property
  • Actual cash value (ACV)
  • Peril
  • Direct loss
  • Indirect loss
A

Property Risks

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6
Q

Land and anything physically attached to the land, such as buildings.

A

Real Property

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7
Q

Machinery, equipment, furniture, fixtures, stock, and vehicles.

A

Personal Property

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8
Q

The cost to replace or replicate property at today’s prices.

A

Replacement Value of Property

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9
Q

An insurance term that refers to the depreciated value of the property.

A

Actual Cash Value (ACV)

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10
Q

A cause of loss, either through natural events or through the acts of people.

A

Peril

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11
Q

A loss in which physical damage to property reduces its value to the property owner.

A

Direct Loss

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12
Q

A loss arising from inability to carry on normal operations due to a direct loss to property.

A

Indirect Loss

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13
Q
  • Workers compensation legislation
  • Contractual liability
  • Indemnification clause
A

Liability Risks: Statutory Liability

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14
Q

Laws that obligate the employer to pay the employees for an employment related injury or illness, regardless of fault.

A

Worker’s Compensation Legislation

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15
Q

Performance or financial obligations (risks) that firms assume when entering into contracts with other parties.

A

Contractual Liability

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16
Q

A contractual clause that requires one party to assume the financial consequences of another party’s legal liabilities.

A

Indemnification Clause

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17
Q
  • Torts
  • Establishing Negligence
  • Reasonable (prudent person) standard
  • Compensatory damages
A

Liability Risks: Contractual Liability

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18
Q

Wrongful acts or omissions for which an injured can take legal action against the wrongdoer for monetary damages.

A

Torts

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19
Q
  • A legal duty between parties to act (or not to act) to cause injury (damage)
  • A failure to provide the appropriate standard of care
  • The presence of actual injury or damages
  • Action that was proximate cause of injury or damage.
A

Establishing Negligence

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20
Q

The typical standard of care, based on what a reasonable or prudent person would have done under similar circumstances.

A

Reasonable (Prudent Person) Standard

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21
Q

Economic or noneconomic damages intended to make the claimant whole, by indemnifying the claimant for any injuries or damage arising from the negligent action.

A

Compensatory Damages

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22
Q
  • Economic damages
  • Noneconomic damages
  • Punitive damages
A

Torts: Types of Damages

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23
Q

Compensatory damages related to an economic loss, such as medical expense, loss of income, or the cost of property replacement/restoration.

  • Easier to quantify than noneconomic damages
A

Economic Damages

24
Q

Compensatory damages for losses such as pain and suffering, mental anguish, and loss of consortium.

A

Noneconomic Damages

25
Q

Damages intended to punish wrongdoers for gross negligence or a callous disregard for the interests of others and to have a deterrent effect.

A

Punitive Damages

26
Q
  • Manufacturing defect
  • Design defect
  • Marketing defect
A

Product Liability

27
Q

A defect resulting from a problem that occurs during the manufacturing process causing the product to subsequently not be made according to specifications.

A

Manufacturing Defect

28
Q

A defect resulting from a dangerous design, even though the product was made according to specifications.

A

Design Defect

29
Q

A defect resulting from failure to convey to the user that hazards are associated with a product or to provide adequate instructions on safe product use.

A

Marketing Defect

30
Q

Risks that directly affect individual employees, but may have an indirect impact on a business as well.

A

Personnel Risks

31
Q
  • Ways of coping with risk that are designed to preserve assets and the earning power of a firm.
  • Involves finding the best way possible to reduce the cost fo dealing with risk.
  • Insurance is only one of several approaches to minimizing the pure risks a firm is sure to encounter.
A

Risk Management

32
Q
  • Small businesses pay insufficient attention to analyzing potential risk.
  • Large firms can assign responsibilities for risk management to a specialized staff manager.
  • Risk management is not something that requires immediate attention- until something happens.
A

Risk Management Differences From Large Firms:

33
Q

Loss prevention and loss avoidance =

A

Risk Control and Loss Reduction

34
Q

Making funds available to cover losses that cannot be managed by risk avoidance.

  • Risk transfer
  • Risk retention
  • Self-insurance
A

Risk Financing

35
Q

Buying insurance or making other agreements with others to transfer risk.

A

Risk Transfer

36
Q

Choosing- whether consciously or unconsciously, voluntarily or involuntarily- to manage risk.

A

Risk Retention

37
Q

Designating part of the firm’s earnings as a hedge against possible future risks.

A

Self-Insurance

38
Q
  • Property insurance
  • Business interruption insurance
  • Commercial General Liability (CGL) insurance
  • Automobile insurance
  • Workers’ compensation insurance
  • Crime insurance
  • Business owner’s policy (BOP)
  • Package policy
A

Property and Casualty Insurance

39
Q
  • Named-peril approach
  • All-risk approach
  • Coinsurance provision
A

Property Insurance

40
Q

Identifies the specific perils covered.

A

Named-Peril Approach

41
Q

Defines the perils covered by stating that all direct damages to property are covered except those caused by perils specifically excluded.

A

All-Risk Approach

42
Q

Property must be insured for at least 80% of its value or ca penalty will be applied to any covered loss.

A

Coinsurance Provision

43
Q

Reimburses for loss of (anticipated) income plus continuing expenses due to direct loss impacting business revenues.

A

Business Interruption Insurance

44
Q

Covers bodily injury and property damage for which the business is liable.

A

Commercial General Liability (CGL) Coverage

45
Q

Protects against liabilty and physical damage to a vehicle resulting from insured perils such as collision, theft, vandalism, hail, and flood.

A

Automobile Insurance

46
Q

Provides benefits to employees for medical expenses, loss of wages, and rehabilitation expenses, as well as death benefits for employee’s families.

A

Worker’s Compensation Insurance

47
Q

Coverage against employee dishonesty.

A

Crime Insurance

48
Q

A business version of a homeowner’s policy, designed to meet the real and personal property and liability insurance needs of small business owners.

A

Business Owner’s Policy (BOP)

49
Q
  • A lower premium than would otherwise be required to purchase all coverages separately
  • Automatic inclusion fo business interruption insurance.
  • Automatic replacement value protection, as opposed to actual cash value protection.
A

Advantages of BOP

50
Q

A policy for small businesses that do not qualify for a BOP that combines property insurance and commercial general liability insurance.

A

Package Policy

51
Q
  • Lower premium than would otherwise be required to purchase all coverages seprately.
  • Ease of adding other coverages more economically.
  • Inclusion of business interruption insurance
  • Inclusion of crime insurance
A

Advantages of Package Policy

52
Q
  • Health Insurance
  • Health Maintenance Organization (HMO)
  • Preferred Provider Organization (PPO)
  • Key-Person Insurance
  • Disability Insurance
A

Life and Health Insurance

53
Q

Coverage for medical care at hospitals, doctors’ offices, and rehabilitation facilities, that usually includes outpatient services and prescription drugs.

A

Health Insurance

54
Q

A managed-care network that provides health insurance that is generally less expensive than that of a PPO but limits employees’ choices of medical care providers more than a PPO does.

A

Health Maintenance Organization (HMO)

55
Q

A managed-care network that provides health insurance that is generally more expensive than an HMO but offers a broader choice of medical providers.

A

Preferred Provider Organization (PPO)

56
Q

Provides benefits upon the death of a firm’s key personnel.

A

Key-Person Insurance

57
Q

Provides benefits upon the disability of a firm’s partner of other key employee.

  • Disability buyout insurance
  • Key-person disability insurance
A

Disability Insurance

Management (33 decks)

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